View on market
US spot Ethereum ETFs saw $133.3 million in net outflows on the second trading day, with Grayscale’s ETHE experiencing $326.86 million in net outflows. On the technical front, ETH is in a downtrend.
Short Call
The proposed strategy is a Short Call. A short call strategy is one of the simple ways options traders can take bearish positions. It involves selling call options.
You might consider initiating this trade if you believe that ETH can face hurdles in price to move higher from the supply zones.
Trade Structure
(OTM Call) Sell 1x ETH-30AUG24-$3,500-C @ $142.76
Target: Spot level < $3,500
Payouts
Maximum Profit: $142.76/ETH
Why are we taking this trade?
On the second day of trading, US spot Ethereum ETFs saw net outflows of $133.3 million, while Grayscale’s ETHE experienced a staggering $326.86 million in net outflows (Source: Farside Investors).
As highlighted in my insights of June 23rd and July 27th, the listing of regulated exchange products often precedes market corrections. Historically, all crypto listings have seen a ramp-up leading into their launch, only to become “sell-the-news” trading opportunities. This pattern was observed in December 2017, April 2021, October 2021, January 2024, and now again in July 2024.
The launch of the Ethereum ETF coincided with the initial Bitcoin distributions from Mt. Gox, potentially adding selling pressure to the crypto market. Compounding this, the US tech earnings season has started poorly, with significant sell-offs in Alphabet and Tesla following their earnings reports.
From a technical perspective, as highlighted in the attached 2-hour price chart, Ethereum broke the key pivot of $3,320, leading to increased selling pressure. If we compare ETH to other cryptocurrencies on a daily basis, ETH has underperformed in terms of market cap, as highlighted in the chart below.
The newly formed supply zone/resistance level of $3,320 & $3,410 may act as an obstacle to ETH in upward movement. Traders might take advantage of these resistance levels by shorting out-of-the-money calls, such as at the $3,500 level.
It’s important to note that a sudden surge in volatility leading to a substantial upward movement would be bad, due to the position’s short call exposure.
How to take this trade on Deribit?
Step 1: Go to ETH Options
Step 2: Select Expiry, Strike and execute your Strategy.
Disclaimer
This report must not be used as a singular basis of any trading decision. The document includes analysis and views of our research team. The document is purely for information purposes and does not constitute trading recommendation/advice or an offer or solicitation of an offer to buy/sell any contract.
